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International Talent Group, Inc. v. Copyright Management, Inc., 629 F. Supp. 587 (S.D.N.Y. 1986) (full-text).
Factual Background Edit
In the latter part of 1983, plaintiff, International Talent Group (“ITG”), a company in the business of booking concert tours, contacted computer systems consultant, Copyright Management, Inc. (“CMI”), with the intent of purchasing a new computer system to replace the recordkeeping system that was currently in use. The two parties entered into negotiations at which time ITG described the nature of its business and the requirements needed by the computer system. ITG represented its need for multiple, interrelated and interdependent tasks to be performed at once. In response to ITG’s requirements, CMI made numerous representations to ITG including that they were “experts in evaluating, recommending and installing computer systems” in addition to being well-versed in the “entertainment industry, including particularly artist booking agencies like ITG.”
In reliance of these representations, ITG entered into an oral contract with CMI whereby CMI would advise ITG regarding the hardware the company should purchase to maximize their efficiency. The oral agreement also provided that CMI would act as ITG’s agent in the purchase of the hardware it recommended. Shortly thereafter, CMI, on behalf of ITG, purchased the Datapoint computer system.
After the Datapoint system was selected, ITG entered into a written software license agreement with CMI to produce various software programs that would both meet ITG’s previously discussed needs and integrate with the Datapoint system.
The written software agreement provided both an arbitration clause and merger paragraph. The arbitration clause required “all proceedings in relation [sic] to the subject matter hereof other than equitable remedies shall be settled by arbitration in the State of Tennessee. . . .” The merger clause established that, “th[e] contract constitutes the entire and exclusive Agreement and supersedes all previous communications, representations or agreements, either oral or written. . . .”
Upon implementing the CMI-recommended Datapoint system and software programs, ITG learned that the hardware was inadequate and incapable of accommodating the software programs that ITG required it to use. The system’s response time was laboriously slow and resulted in increased costs and reduced productivity. As a result of the increased costs of the system due to CMI’s “misrepresentations” and “failure to honor their warranties,” ITG sought damages in excess of $200,000.00 arising out of the oral agreement.
Additionally, ITG claimed that the software programs were “seriously defective and failed to meet [ITG’s] needs." ITG claimed that the software programs were incapable of being integrated into ITG’s business operation and failed to cross-reference information among files in the same way ITG was doing manually. Despite CMI’s numerous attempts to fix and revise the software system, ITG maintained that the software only became more defective. As a result, ITG alleged that it never received a fully functional system and therefore had suffered “enormous disruption and financial loss."
Trial Court Proceedings Edit
In response to ITG’s suit, CMI contended that both agreements were governed by the terms of the written software license and, in particular, the arbitration agreement. CMI made a motion to compel arbitration.
The district court determined that the plaintiff’s claims fell squarely within the arbitration agreement found in the written contract. In arriving at this conclusion, the court looked to see if the two agreements “merged” into one agreement or remained as two separate contracts. The court found that the claims pertaining to the hardware’s inadequacy directly related to the software’s inability to perform as represented. Therefore, despite the two agreements being “separate” in the sense that they were executed at different times, the court determined that both claims were so intertwined that both claims “related directly to the subject matter of the software contract” as included in the arbitration clause. As a result, the court granted defendant’s motion to compel arbitration was granted.